Alberta’s first renewable energy procurement process

OKT’s feedback on the key provisions of the Renewable Electricity Support Agreement

OKT is pleased to share on this blog the comments we have sent to the Alberta Electric System Operator (“AESO”) in the context of the community engagement process which is due on December 9, 2016. OKT has encouraged Alberta’s First Nations to participate in this engagement phase in order to demonstrate the importance of indigenous participation in the first renewable energy procurement that will be launched in 2017.

As mentioned in our last blog post, OKT very much welcomes the development of a large renewable energy economy in Alberta. However, with the 2017 bid process imminent, strong and specific criteria encouraging participation of indigenous communities in this new economy have yet to be announced. OKT has spent the last five years working on renewable energy deals for First Nations in Ontario. We have personally witnessed the transformative outcomes that can arise from these deals. Strong partnerships with private developers have permitted First Nation communities to affirm their rights to their land and improve their economic outcomes. OKT is therefore urging the Government of Alberta (“GoA”) to support its shift towards renewable resource development with a strong signal to prospective developers that aboriginal participation is a valued attribute of a successful bid.

We are specifically encouraging the AESO to loosen the requirements around change of control to allow for inclusion of indigenous partnerships prior to a project reaching commercial operation, and to explore the idea of adding rated criteria to the competitive process to encourage indigenous participation and partnership. Where the AESO adopts such a formula, a specific section in the Renewable Energy Support Agreement (“RESA” – the document setting out the payment mechanism between a successful bidder and the AESO) could address aboriginal partnerships. Such partnerships have been adopted in other Canadian jurisdictions and have proven to be favourable to both communities and private developers, by providing certainty of community support and allowing indigenous groups to participate in the energy sector in a manner typically aligned with traditional values.

These recommendations do not come to the Province without precedent. The “Report to Minister” on Alberta’s Climate Leadership (the “Leach Report”), published in November 2015, made clear recommendations to the GoA in terms of partnership with indigenous communities. “Full inclusion” was a key concept in the drafting of the recommendations of the Leach Report and an important focus was made on the necessity of creating concrete partnerships with Indigenous communities in the growing sector of renewable energy. The Leach Report strongly encourages the GoA to implement a structure of renewable energy procurement which fosters the participation of aboriginal communities.

Adopting these recommendations would also meet key election promises of the Premier Notley’s incumbent government. Ms. Notley was elected on, inter alia, the promise to implement the UNDRIP and to build it into provincial law (we have written about the challenges of doing this here and here.) Indigenous participation in renewable energy projects is an opportunity to demonstrate development based on the principles of Free, Prior and Informed Consent (“FPIC”), a foundational concept of United Nations Declaration on the Rights of Indigenous People (“UNDRIP”). While the GoA has acknowledged it may later decide to include indigenous participation in future renewable energy procurements, this acknowledgement only emphasizes its absence now.

OKT recognizes the proposed renewable energy legislation assigns responsibility to manage engagement with aboriginal communities to the GoA specifically. The Renewable Electricity Program Recommendations (endorsed by the GoA on November 3, 2016) on the other hand provides for AESO’s efforts to be concentrated on the investor and developer communities. OKT’s main objective through its recommendations on the provisions of the RESA is to establish that these categories should not be mutually exclusive, and that focus should be placed on the importance of engaging with the First Nations of Alberta in this first competitive process as nascent “investor and developer communities”. Contrary to the GoA’s positions, there are few reasons to postpone indigenous participation in renewable energy procurement. First Nations have tremendous capability to finance the purchase of equity investments into these projects now, if given the opportunity, and cannot continue to merely be seen through a narrow ‘duty to consult’ lens if outcomes in these communities are expected to improve. Rather, a sound, fiscally responsible electricity regime that encourages their participation will allow for the incubation of a domestic investment community that independently improves outcomes of the members living in these communities. Accordingly, the GoA and AESO should take a strong position towards aboriginal partnerships. They have proven overwhelmingly positive for all involved communities in other Canadian jurisdictions.

What is also clear from other jurisdictions in Canada where aboriginal partnerships were encouraged is the active, participatory, nature of consent. Whereas discussions regarding consultation characteristically revert to competing assessments of its adequacy, discussions that prolong rather than avoid conflict, consent is objectively far easier to assess – there is either participation, or there isn’t. In turn, in an assessment regarding the mitigation of development risk, a demonstration that consent has been achieved is accordingly of much greater value than a determination that consultation has been adequate.

OKT’s feedback on the RESA’s provisions are the following:

1. Sections 4 and 8: Requirements for Commencement of Construction and Design and Construction

Additional requirement for commencement of construction should include confirmation the Generator has received a valid support resolution of the Indigenous Community on whose traditional territory the Project is located;

Absent a support resolution, the commencement of construction should additionally require the submission of an aboriginal participation plan to the AESO demonstrating the steps Generator intends to take in accordance with an agreed frame of reference to encourage aboriginal participation in the Project and mitigate construction period impacts on aboriginal and treaty rights.

2. Sections 5: Requirements for Commercial Operation

An additional requirement of Commercial Operation must include either an indigenous support resolution or, where no indigenous support resolution has been achieved, certificate from the Generator confirming that all of the steps outlined in the approved Aboriginal Participation Plan submitted prior to the commencement of construction have been met in accordance with the frame of reference established by the AESO.

3. Section 11: Approvals

As per the previous comments, an indigenous support resolution or alternatively an acceptable Aboriginal Participation Plan in accordance with an AESO developed frame of reference should be a requirement pertaining to the Generator’s obligation to obtain and maintain approvals in order to comply with its obligations under the RESA.

AESO must contemplate the ownership of renewable generation projects by entities partly or wholly owned by indigenous communities, and permit space for the negotiation of the same. Where an indigenous community is successful in negotiating a governmental guarantee, or Alberta otherwise institutes an Aboriginal Loan Guarantee Program, in each case to assist credit challenged communities to raise the necessary capital to purchase an equity interest in a Generator, a restriction that the Generator may not seek other funding or incentives that are provided or offered by the Government of Alberta with respect to renewable generation projects would preclude the utilization of this very practical financing tool. Suggest an exemption for Generators that are partly or wholly owned by indigenous communities.

5. Section 14: Operational Covenants on Resource Rights

In cases where the project is developed on indigenous reserve land, the RESA should add a specific provision mentioning the rental fees paid for indigenous waterpower rights. As an example, please see the amendments to the Natural Resources Transfer Agreement dated 1938 and 1945 detailing indigenous waterpower rights of the Stoney Nakoda Nations.

6. Section 16: Settlement Provisions on Contract Price and Payment

The presence of a support payment for the development of renewable energy projects is a policy decision allowing for the introduction of these technologies into the Alberta electricity market consistent with the environmental goals of the GoA. The decision to structure a support payment for renewable developers, while overlooking the alignment of renewable energy projects with indigenous traditional values and the opportunity to encourage indigenous investment in such projects, is a missed opportunity to develop a strong domestic investor community within the province’s indigenous groups, and postpones taking the concrete steps towards economic reconciliation outlined in the Truth and Reconciliation Commission’s 2015 Calls to Action, and the aforementioned UNDRIP;

As indicated, OKT urges the AESO to refer to the model adopted by the IESO in Ontario regarding aboriginal participation, aboriginal projects and an aboriginal price adder; Moreover, in a competitive bidding scenario, aboriginal communities have consistently demonstrated resourcefulness and ingenuity in structuring relationships that allow a Project to bid competitively. Without a push to developers encouraging aboriginal participation, however, there is little opportunity for these communities to demonstrate these qualities.

7. Section 19: Change in Law

A change in law concerning future aboriginal participation in renewable energy projects submitted to the AESO should be mentioned in provision 19. However, OKT strongly encourages the GoA to instead include criteria for meaningful aboriginal participation in the first procurement process starting in 2017. It is not too late at this point to include incentives to encourage indigenous participation.

8. Section 29: Change of Control

OKT strongly recommends that an exemption for aboriginal groups is provided in this section to allow developers negotiating with these communities to allow for their direct participation in the ownership of the Project. The RESA section on Change of Control should accordingly be modified to allow for a change of control only in the instance of an aboriginal group participating or declining participation in a project. As for example, see the IESO LRP Contract and the IESO Feed-in Tariff Contract.

In addition to the specific representations and warranties mentioned in provision 31, OKT encourages the AESO to add a representation specific to the acquisition of the consent of aboriginal communities that would be affected by the development of a renewable energy project. The Renewable Energy Program should require, in the first procurement process, the consent of the aboriginal community through a support resolution, or in its absence a clear plan for aboriginal participation submitted by the Generator.

In addition, specific representations and warranties should be added if AESO decides to implement the recommendations on aboriginal partnership and incentives contained in this submission. The renewable energy sector offers the GoA a chance at an inclusive development model that can be done with the consent of indigenous communities. It’s a tremendous opportunity to balance out the image of conflict between Indigenous communities and energy development that many people associate with Alberta. And there is no better way to include Indigenous communities than by partnering with them in renewable energy projects from Day 1. It would also be a major step for the Notley government to live up to its commitment to the UNDRIP requirement of seeking the FPIC of indigenous peoples.

Implementing such regime that would be favorable to aboriginal groups is not in contradiction with a cost competitive bidding process such as demonstrated by multiple energy projects in other Canadian provinces. This positive shift would also benefit renewable energy private proponents. Partnerships and inclusion can lead to the consent of host communities, and a more peaceful development of indigenous lands.

We will keep this blog updated with information on Alberta renewable energy procurement process. If your community would like to learn more about opportunities in the renewable energy sector in your region, feel welcome to contact either of us with your questions (Julie-Anne Pariseau: jpariseau@oktlaw.com; Oliver MacLaren: omaclaren@oktlaw.com).